Would this be easier, or harder if it were FUSE based?

FUSE is a Unix thing. I believe there is a port/similar thing for Windows, but I guess it would suffer the same kinds of limitations; namely performance, because everything is translated through userspace. That said, isn't it true that Windows drivers are userspace-based, anyway?

Keybase.io and sshfs use it, currently. Personally, I love it. I'm sure you're right about performance limitations, but there are very good use cases for it, like Keybase Filesystem and sshfs, where any latency introduced by the driver subsystem is less likely to be felt due to the latency of working with files over the network.

Interestingly, a set of the insider previews of Windows broke Dokany so badly that launching the driver caused everything to hang (hard -- all but the mouse stopped responding to anything, even CTRL+ALT+DELETE). It's tricky stuff, apparently.